Competitiveness - An Introduction to Climate Change Legislation

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Competitiveness

Even a cost-effective climate policy will increase the prices faced by producers (and consumers) across sectors of the U.S. economy. These costs give rise to two particular concerns. The first is of the ability of U.S. producers to compete against foreign suppliers operating in countries where emissions do not carry similar costs, especially in trade-sensitive, energy-intensive sectors.

The second is that domestic regulatory costs can lead U.S. production to shift abroad to unregulated foreign firms, and the resulting emissions leakage would undermine the environmental benefits of the policy. Besides reducing stringency or granting exemptions to vulnerable industries, competitiveness concerns can be addressed through a variety of policies, including allocating free allowances to firms as incentive to maintain production and trade-related approaches like border tax adjustments.